Extreme prices plaguing marketing decisions

Grains this past month can be summed up in just one word, extremes. We have seen both price extremes and weather extremes. The uncertainty of weather has often yielded quick and violent price movement. All summer it has become apparent that we are in a season of extremes. That is not a short-term phenomenon. However, time is running out for weather to have much more impact in coming weeks.

This summer it has been very common to see daily prices for corn and soybeans peak during the overnight trading session, only to reverse and move harshly in the opposite direction during the day session. It can make for some most frustrating thoughts as to pricing or not pricing 2016 corn and soybeans. One moment you are happy and a few hours later you are not. It quickly becomes, “cycle, rinse, repeat.”

It was most interesting to observe the market mentality leading up to the USDA supply and demand report released on July 12.  Traders had expected the reports to be bearish. They had expected ending stocks for corn and soybeans to increase and prices to decline. While the reports did have corn and soybean ending stocks increasing, it was not to the extent expected. New crop corn ending stocks came out at 2.081 billion bushels. Looking several months down the road, some analysts think new crop corn ending stocks could eventually reach near the 2.5 billion bushel mark, especially if the U.S. corn yield increases. Some also expect demand for U.S. corn could falter in the months ahead. The bottom line is that it would seem traders forgot about weather and tried to place more significance upon the monthly USDA supply and demand report than it deserved.

Corn exports increased due largely to less production from Brazil while corn used for ethanol declined. Brazil corn production was lowered 7.5 million tons. Likewise soybean-ending stocks for new crop soybeans did increase 30 million bushels to 290 million bushels. New crop soybean demand increased a total of 30 million bushels with both exports and crush increasing. When the report was not bearish for corn or soybeans, funds quickly returned to their pattern of buying soybeans. With the report not producing price declines, it gave those funds confidence to again turn to buying soybeans.

At this reading we will know if temperatures reached near the 100-degree level in the Midwest the last 10 days of July. Mid-July some of the weather forecasts had expected a ridge pattern to develop in the Midwest and southern plains areas. That weather pattern brings excitement to traders as it can bring high temperature extremes for days while often preventing needed rains from taking place.

Weather concerns can bring volatile price activity with wide ranges from highs to lows in a short period of time. The week of July 11 is a great example of this price pattern. November CBOT soybeans that week had a high of $11.23 and a low of $10.21. Prices were low early in the week, then peaked mid-week on weather concerns of hot and dry, only to close the week near $10.57 as prolonged ideas of hot weather vanished. The extreme price volatility has not gone unnoticed by the CBOT. While traders love price volatility and huge price ranges along with the potential for gains, it does have a money management downside. Soybean margins have more than doubled since early April. Unforeseen weather and additional demand have pushed November CBOT soybeans from $9.10 on March 31 to $11.86 on June 13.

The Aug. 12 USDA supply and demand report will be the first actual survey of U.S. corn and soybean fields for yield determinations. Without additional weather concerns for corn the U.S. yield could easily climb above 168 bushels. Without additional demand corn will have difficultly moving past $4.10 in coming months.

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